How to Get Start Up Capital With a Bad Economy
When the economy is poor, venture capitalists, banks and individual investors become more risk-averse. This can make it challenging to get funding capital for a startup business, particularly if you lack a track record of successful entrepreneurship. The main method for getting startup capital in a down economy is to finance the business yourself or to use the initial profits of the business to fund its operation. Once you can demonstrate profitability for a sensible period of time, investors will be more likely to plow money into your operation.
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Instructions
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Research the business thoroughly before starting it. Read at least three books on the business. Read several issues of a trade journal that relates to the sector you plan to work in. Contact successful entrepreneurs in the field and ask them about how they started their business. Don't procrastinate too much by over-researching, but at least get some basic information about the risks you're taking.
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Save up money to fund your business. Taking out loans, particularly at high interest, isn't necessarily advisable for starting a new business. Loans are more expensive in the long run, and it will eat into the profitability of your business to have to spend extra money to pay back banks and credit card companies. The interest that you pay for borrowed money will come out of your future operating profits. This can easily strangle a business that might have otherwise seen eventual success.
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Select a business plan that allows the company to be profitable immediately. For example, instead of purchasing equipment initially, you may be able to rent equipment for the business while you work on building up a customer base. Instead of hiring permanent employees, you can hire contractors on a temporary basis to fulfill set tasks. This also has the advantage of saving on Social Security and Medicare taxes for employment.
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Utilize your existing assets as startup capital for your business. For example, you may be able to save money by working from your home rather than renting an office. Instead of purchasing vehicles for the business, you may use your personal car instead.
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Apply for business loans or look for outside investment only if you can demonstrate that your business is already profitable. In many cases, it can take a year or more for a business to become profitable. Some extremely risky business types like restaurants can take over half a decade to turn a profit. Investors will be more likely to take risks in your business if you can provide reasonable proof that it can grow.
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